Informal Borrowers and Financial Exclusion: The Invisible Unbanked at the Intersections of Race and Gender

Previous work has found that predominantly Black and Hispanic neighborhoods continue to have less access to mainstream financial services and a greater prevalence of high-cost alternatives. Less attention has been dedicated to the other financial tools available to financially excluded households. Borrowing from friends and family is one widely used yet under-examined strategy for coping with emergency expenses. The literature provides preliminary evidence that informal borrowing and the costs of such borrowing are unequally distributed by race and gender. Drawing on data from the Survey of Household Economics and Decisionmaking, this article identifies predictors of planned informal borrowing use and examines whether this borrowing is symptomatic of financial exclusion using a bivariate probit model. Women of color are disproportionately likely to plan on using informal borrowing as their sole strategy for coping with an emergency expense. Black women in particular are twice as likely to do so as White respondents. While this informality occurs among the banked and unbanked, unobserved factors such as limited access to bank branches link financial exclusion and informal borrowing.